Government to Levy GST on Inter-State Office Services

GST Implications on Inter State

Latest in the news, Government has made it clear in its pitch that, goods and services tax or GST will be imposed on the exchange of services from one state to another. If the scale of the services provided by the office in one state goes to the office in another state than the responsible organization has to face GST. This clause adopted by the GST council on papers will soon be effective. 

This decision is followed by the vision of Karnataka Authority of Advance Rulings (AAR) which states that any domestic activity carried out in the office of one state for the office in another state has to confront GST and an invoice will be issued for the same. 

This clause will be a tough one for companies having branch offices in different states. 

The council in its new GST circular will also include the perks of the employees, said a government official. On this, Input Tax Credits can be claimed by the companies but for absolve sectors such as healthcare, liquor, education, power, it will be a cost as the tax charged would not be credited.

This new circular also has portrayals from industries, asking for clarification on tax-ability of activities performed by the offices of an organization in multiple states, considered as two different entities, under GST laws, services offered by the office in one state to the office of the same organization in another state will be treated as the supply between two different units.

The law commission under GST council has decided to clarify the issues through the circular regarding the division of input tax credit in regards to the input services offered by the head offices or other outlets of the same organization. 

Input tax credit assured by the GST council will consider the expenses sustained by the head office on the purchase, distribution, and management of the services and treatment of services provided by the head office to its outlets and their assessments. 

Read also: List of Goods and Services Not Eligible for Input Tax Credit

The circular in the form of Frequently asked questions will define the distribution of input tax credit between the head office and branch offices of the same organization. 

Expenses will be allocated based on the valuation principles specified by the GST council and generally accepted accounting principles. According to some experts in the field, regardless of the location, the government has to treat an employee of an organization as the employee of the single organization. 

Experts say “it would be a sensible approach of the government to consider an employee as an employee of the whole organization and not of a defined location, so there may not be a need to cross charge of income cost between head office and branch office transactions”. Deduction of cross charging will prevent loads of confusion based on paperwork.

In most of the cases, it is the revenue neutral practice, except where the output is either immune or not within GST where GST charged becomes a cost. Technically speaking it should be made optional by the government where the input tax is confined to a state, further the salary of the employee should not be included as he is an employee of the particular organization and not of a particular state or location.

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